Tips on Protecting Yourself From Elder Financial Abuse
By Ingrid Evans, Of Counsel
ANNUITIES - WHAT TO BE AWARE OF?
Deferred Annuities - What YOU Should Look Out For
Have you ever had the following happen to you?
- Attended a free-lunch seminar involving retirement planning?
- Met someone who offered you free estate planning advice, or offered estate planning services or a living trust for a very small price?
- Met someone who offered you a reverse mortgage?
- Met someone who offered to move your risky investments into a safer financial product?
- Met someone who introduced themselves as a Certified Senior Advisor or an expert in senior financial planning?
- Had an insurance agent visit your home?
These are some of the schemes used by insurance agents/companies to market and sell financial products known as deferred annuities. While agents often talk about the benefits of deferred annuities, you should be aware of their disadvantages.
Deferred annuities are long-term products that tie up your assets and may even take money from you or your heirs if you pass on before the product matures. Some examples of their disadvantages include:
- Surrender Charges - Penalties that apply when you try to surrender or withdraw monies from a deferred annuity. The penalties can last as long as 10-15 years, and can sometimes be as high as 25%!
- Forfeiture Charges - What would you think if someone offered you a higher return through a bonus or interest tied to a stock market index, only to find out these extras require you to hold onto the policy for as long as 15 years to avoid forfeiting them?
- Charges at Death - Deferred annuities offer a death benefit when you die, but you should check to see if the policy can penalize your heirs/estate at your death.
- Teaser Interest Rates - If an agent offers a high rate of return on a deferred annuity, you should ask if the rate drops to a lower rate the next year. Many deferred annuities drop to an interest rate much lower than CD or comparable product.
What am I really Paying for?
Most people don't realize that deferred annuities are very costly products that the insurance companies make you pay for through rates of return that are inferior compared to other investment products or portfolios with lower costs and an equal amount of risk. So what are you really paying for?
Typical costs include:
- Commissions - Did you know that the agent who offered you free advice and sold you a deferred annuity made money off of you - as much as 15% of what you paid!
- Bonuses and Teaser Rates - Did you know that you are paying for these extra bonuses through lower interest rates in later years?
- Liquidity - Did you know that the company requires a penalty if you take your money out, even if for an emergency, before the surrender charge period expires?
Your Senior Expert May Not Be an Expert
All deferred annuities are sold by insurance agents licensed with the state. Some insurance agents may have little or no qualifications or expertise in financial planning. In recent years, some agents have used allegedly phony credentials like Certified Senior Advisor that falsely represent their actual qualifications or expertise in financial planning.
Deferred Annuities - What YOU Can Do to Protect Yourself
There are a number of things you can do to protect yourself from fraud.
- If you were already sold a deferred annuity, you have 30 days to cancel it if your are 65 or older.
- If you were already sold a deferred annuity, call our attorneys toll free at 800-226-9880.
- Research the product.
Get an opinion from an independent financial advisor who is not getting a commission and is not an insurance agent.
- Ask if there are surrender or death charges.
- Ask how much the agent is earning in commissions.
- Ask what specific fees and charges are featured.
- Ask if the interest rate drops after the first year.
- Consult websites and resources related to senior financial planning in order to learn about deferred annuities.
- Check to see if there is a pending lawsuit against the insurance/annuity company.
- Always have a close friend or family member to consult with when making investment decisions. Most importantly, have a reputable financial planner look over the product to see if it is appropriate.
- Check the agent's credentials. Here are some resources you can use to research the agent:
- State Departments of Insurance such as the California Department of Insurance
- SEC and FINRA (formerly NASD)
- The internet - use any major search engine such as Google or Yahoo!
Watch out for agents who use phony certifications that misrepresent their actual qualifications or expertise. Always check to see if that credential is valid and matches that agent's expertise.
Some designations you should look out for:
- Certified Senior Advisor (CSA) - earned through three and a half-day course, where no college degree or prior financial experience is required.
- Certified Retirement Financial Advisor (CRFA) - earned through a four-day in-person or self-study course. College degree or prior financial experience is required.
- Certified Senior Consultant (CRC) - earned through a thirty-hour self-study course. An undergraduate degree and one year of experience in financial service is required.
Compare:
Certified Financial Planner (CFP) - A master of 89 topics in integrated financial planning. At a minimum, in order to earn this designation, an undergraduate degree is required, plus course training in the above topics, as well as passage of a ten-hour multiple choice exam.
If you have already purchased a deferred annuity, here are some things you can do to make sure you understand the policy you purchased:
- Read Your Policy - If needed, consult a close friend or family member and reputable financial planner.
- Opt for the Free-Look Period - Most states have laws which allow you to cancel your policy if done within the certain time period. In California, it is 30 days.
REVERSE MORTGAGES - BE AWARE OF THE HIDDEN COSTS
Reverse Mortgage - What to Look Out For
Reverse mortgages are HIGHLY complex financial products that have serious consequences to the equity in your home. Here are some things to consider:
Reverse Mortgages are Loans - With a reverse mortgage, you are borrowing the equity accumulated in your home. That loan will need to be paid back by your heirs if you pass away or the house will be sold.
Reverse Mortgage Problems - A reverse mortgage may cause problems if you or your heirs want to keep the home or pay back the loan.
Some questions you should ask before entering a reverse mortgage:
How Much am I Borrowing? The higher amount you borrow, the higher amount of interest you accrue every month.
What is the Interest Rate on this Loan? Most reverse mortgages allow the lender to adjust the interest rate to a very high interest rate or the rate changes from a low rate to a high rate after several months.
What am I Paying for? Reverse mortgages have higher closing costs than regular mortgages. Such costs are typically paid for using the proceeds of the loan itself. This either decreases the amount of cash available for you, or forces you to borrow more. Some expenses and costs that come with reverse mortgages include:
- Pre-existing mortgages/liens
- Origination fees or broker commissions - which can be as high as 2% of the amount borrowed!
- Mortgage insurance premiums - which can be as high as 2% of the amount borrowed initially!
- Service release premiums and loan correspondent fees
- Recording fees, appraisal fees and other closing costs
- Repair rider fees and set-asides
What am I Still Paying for? You should know that you are still responsible for typical homeowner costs, such as:
- Property taxes
- Homeowner's insurance
- HOA fees
- Repairs to property
Watch Out for an Annuity! Some agents/brokers have attempted to commit sales fraud by convincing the borrower to use a reverse mortgage to buy an annuity or other insurance product. This is a red flag.
Reverse Mortgages - What YOU Can Do to Protect Yourself
There are a number of things you can do to protect yourself from fraud.
- Research the Product
- Ask what product you are buying, how it works, and how it will help you.
- Ask for a consumer brochure.
- Ask how much you are borrowing and what your interest rate will be.
- Go over the closing costs you will be paying for.
- Consult websites and resources related to senior financial planning to learn about reverse mortgages.
- Counselor - All HECM reverse mortgages, prior to closing, require borrowers to have a counseling session with an independent HUD counselor.
- Check Broker's Credentials - Some resources you can use to research the broker:
- State Departments of Real Estate such as the State of California Department of Real Estate
- SEC and FINRA (formerly NASD)
- The internet - use any major search engine such as Google or Yahoo!
Watch out for agents who use phony certifications that misrepresent their actual qualifications or expertise. Always check to see if that credential is valid and matches that agent's expertise.
Some designations you should look out for:
- Certified Senior Advisor (CSA) - earned through three and a half-day course, where no college degree or prior financial experience is required.
- Certified Retirement Financial Advisor (CRFA) - earned through a four-day in-person or self-study course. College degree or prior financial experience is required.
- Certified Senior Consultant (CRC) - earned through a thirty-hour self-study course. An undergraduate degree and one year of experience in financial service is required.
Compare:
Certified Financial Planner (CFP) - A master of 89 topics in integrated financial planning. At a minimum, in order to earn this designation, an undergraduate degree is required, plus course training in the above topics, as well as passage of a ten-hour multiple choice exam.
If you have already entered into a reverse mortgage, here are some things you can do to make sure you understand your loan:
- Read Your Loan Documents - Below are certain loan documents you should look at under how the loan works and what you are paying for. If needed, consult a close friend/family member and reputable financial planner to help you.
- Good Faith Estimate Form - This estimates the amount borrowed and closing costs.
- Total Annual Loan Cost (TALC) Form - This estimates the total cost of the loan.
- Settlement Statement - This provides borrower's actual closing costs, amount borrowed, and cash amount disbursed to the borrower.
- Adjustable Rate Note - This explains how the loan works.
- Opt for the Free-Look Period - Most reverse mortgage products allow you a very short time period to rescind you loan.
If you believe you have been a victim, here are some steps you can take in California:
- Contact Seniors Against investment Fraud (SAIF)
- Report suspected unethical agents to the following public entities:
- Consult an attorney
PREDATORY LENDERS - PAYDAY LENDERS
Payday or Predatory Lenders Target Social Security Benefits
A large number of Americans surprisingly speculate that only young adults are having a hard time paying their bills. The prevailing opinion is that senior citizens have a significant bank account that allows them to pay all of their expenses with no dilemmas. The truth, often forgotten, is that about 75% of America's senior citizens are agonizing with troubles paying ever-rising medical expenses, medications, and the usual expenses of daily living.
The majority of senior citizens simply receive a Social Security check once a month. When the money is gone there is nothing left to spend. Predatory lenders have begun offering seniors short-term solutions that lead to devastating long-term ruin. So-called payday lenders offer high-cost, short-term loans that result in annual percentage rates of more than 400 percent. if a senior does not pay off the full amount of the loan at the end of the loan period (typically two weeks), he or she must pay additional fees without receiving any additional money. Too many seniors are getting caught in a cycle of payday lender debt.
Payday Lenders' Fraud
Helpful Hints to Consider Before Obtaining a Payday Loan
Some of the problems that can arise with payday loans are:
- The loan term is short and is often not enough time to obtain the money needed to repay the loan in full.
- If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or more money has to be borrowed to cover the first loan. Fees are charged for each transaction.
- The interest rates that are charged are very high - sometimes 400% or higher.
- If the lender deposits the check to repay the loan and there are insufficient funds in the borrower's account, the borrower is hit with even more fees for insufficient funds and still owes the amount of the loan to the lender.
- Also, be careful with auto title loans - these are small, high-interest loans given using a car as collateral. If you default on the loan, you lose your car.
- If you feel that a payday loan is your only option:
- Do not under any circumstances agree to deposit your Social Security benefits in a bank account suggested by the payday lender.
- Shop for the lowest fees and penalties, some credit unions offer payday loans with low fees.
- Borrow only as much as you can afford to repay with your next benefit check.
- Know when your payment is due and be sure to repay the loan on time and in full.
Try to plan for the future by creating a budget that includes an emergency fund for unexpected expenses.
LIFE SETTLEMENTS
Life Settlements - What to Look Out For
Life settlements are HIGHLY complex financial transactions that have serious consequences for your financial welfare.
Here are some things to consider:
- Are you really getting the best deal for selling your life insurance policy? With a life settlement, you are selling your life insurance policy to someone else. If you are considering a life settlement, be sure to ask the financial professional(s) handling your settlement to share with you the details of all offers made for your life insurance policy.
- Some questions you should ask before entering into a life settlement:
- How Many Offers Have Investors Made for My Life Policy? Often in life settlements, multiple investors will make offers for your policy. Sometimes, though, the financial professionals handling life settlements will not share all the details of those offers with the selling policyholder. It is your life insurance policy, and you are entitled to the best price for it - so be sure to ask your insurance agent to tell you about any and all offers investors have made for your policy.
- How much money are others making off of my life settlement? Insurance regulators in a number of states have investigated insurance agents and life settlement brokers for allegedly skimming secret commission payments when seniors sell their life insurance policies. In a typical life settlement transaction, broker and agent commissions will be subtracted from the gross offer an investor makes for your life insurance policy. If you are selling your life insurance policy, you should ask those involved in your settlement to tell you what commission payments they are receiving. Always check to see if that credential is valid and matches that agent's expertise.
- Like insurance agents, watch out for life settlement specialists who use phony certifications that misrepresent their actual qualifications. Sometimes more subtle tactics are used, but real scare tactics are effectively used because they motivate many seniors to buy coverage.
- Some designations you should look out for:
- Certified Senior Advisor (CSA) - earned through three and a half-day course, where no college degree or prior financial experience is required.
- Certified Retirement Financial Advisor (CRFA) - earned through a four-day in-person or self-study course. College degree or prior financial experience is required.
- Certified Senior Consultant (CRC) - earned through a thirty-hour self-study course. An undergraduate degree and one year of experience in financial service is required.
- Compare:
-
Certified Financial Planner (CFP) - A master of 89 topics in integrated financial planning. At a minimum, in order to earn this designation, an undergraduate degree is required, plus course training in the above topics, as well as passage of a ten-hour multiple choice exam.
-
Life Settlements - What YOU Can Do to Protect Yourself
There are a number of things you can do to protect yourself from fraud when selling your life insurance policy.
- Do Some Life Settlement Research
- Ask the financial professionals involved in your settlement about how life settlements work and how your settlement will help you.
- Ask for life settlement consumer brochures.
- Ask how much investors are willing to pay for your policy and who those investors are.
- Ask the financial professional involved in your settlement what their relationships are with the investor(s) buying your policy.
- Consult websites and resources related to senior financial planning to learn about life settlements.
- Discuss your options with an independent financial planner.
- Always have a close friend or family member to consult with when making decisions concerning financial products like life insurance. Most importantly, have a reputable financial planner review your life settlement to see if it is appropriate for you.
- Check Your Life Settlement Broker's Credentials - some resources you can use to research the broker:
- State Departments of Insurance such as the California Department of Insurance
- Life Insurance Settlement Associations (LISA)
- The internet - use any major search engine such as Google or Yahoo!
If you believe you have been a victim, Consult an attorney.
LONG-TERM CARE
Unscrupulous Agents Target Seniors for Improper Long-Term Care
Be careful of long-term facilities that do not meet your needs or are misrepresented.
Long-Term Care - What YOU Can do to Protect Yourself
There are a number of things you can do to protect yourself from fraud when selling your life insurance policy.
- Do Some Long Term Care Research
- Ask the financial professionals involved in your long term care policy about how long-term care works and how your settlement will help you. Make sure the policy is consistent with what the agent says. If the policy does not say it, then it does not exist and it will not help you.
- Ask for long term care consumer brochures.
- Ask the financial professionals involved in your long term care policy what their commissions will be.
- Consult websites and resources related to senior financial planning to learn about long term care.
- Discuss your options with an independent financial planner.
- Always have a close friend or family member to consult with when making decision concerning financial products like life insurance. Most importantly, have a reputable financial planner review your long-term care policy to see if it is appropriate for you.
- Check Your Long-Term Care Insurance Agent's Credentials - Some resources you can use to research the broker:
- State Departments of Insurance such as the California Department of Insurance
- The internet - use any major search engine such as Google or Yahoo!
Watch out for life insurance agents who use phony certifications that misrepresent their actual qualifications. Sometimes more subtle tactics are used, but real scare tactics are effectively used because they motivate many seniors to buy coverage.
Long-term care policies pay the cost of the day-in, day-out care for a person with an acute or long-term illness or disability. Many seniors receive this care in nursing homes, but more effective and less expensive care at home and at adult day-care centers is growing in popularity, because it is less expensive and still provides the security of a longstanding home. That is the theory, but in practice long-term care policies are often riddled with loopholes that do not adequately protect a senior's life savings. Some policies have such strict disability criteria that many policyholders who need help do not qualify for benefits. Add to this cauldron of conflict the insurance company's sales commission structure. Insurance agents are loath to disclose policy pitfalls when it means risking the loss of a commission equal to life insurance commissions of 30 percent to 65 percent of the first year's premium, far more than the typical 10 percent commission many auto insurance agents earn.
Helpful Hits to Consider Before Purchasing a Long-Term Care Policy
- Always check with several companies and agents
It is wise to contact several companies (and agents) before you buy. Be sure to compare benefits, the types of facilities you have to be in to receive coverage, the limitations of coverage, the exclusions, and, of course, the premiums. - Take your time and compare outlines of coverage
Never let anyone pressure or scare you into making a quick decision. Do not buy a policy the first time an agent comes calling. Ask the agent to give you an outline of coverage. The outline of coverage summarizes the policy's benefits and highlights important features. Compare outlines of coverage for several policies.- Understand the policies
- What qualifies you for benefits? Some insurers say you must be unable to perform a specific number of the following activities of daily living: eating, walking, getting from bed to a chair, dressing, bathing, using a toilet and remaining continent.
- What type of care is covered? Does the policy cover nursing home care? What about coverage for assisted living facilities that provide less client care than a nursing home? If you want to stay in your home, will it pay for care provided by visiting nurses and therapists? What about help with food preparation and housecleaning?
- What will the benefit amount be? Most plans are written to provide a specific dollar benefit per day. The benefit for home care is usually about half the nursing home benefit. But some policies pay the same for both forms of care. Other plans pay only for your actual expenses.
- What is the benefit period? It is possible to get a policy with lifetime benefits but this can be very expensive. Other options for coverage are from one to six years. The average nursing home stay is about two and a half years.
- Is the benefit adjusted for inflation? If you buy a policy prior to age 60, you face the risk that a fixed daily benefit will not be enough by the time you need it.
- Is there a waiting period before benefits begin? A 20 to 100 day period is not unusual.
- Do not be misled by advertising or endorsements by celebrities
Most of these people are professional actors who are paid to advertise. They are not insurance experts. - Accurately disclosing your medical history is extremely important
Make sure you fill out the application completely and accurately. If an agent fills out the application for you, do not sign it unless you have read it and made sure that all of the medical information is correct. If information about the state of your health is misstated, incomplete, or wrong, the company will refuse to pay your claims and cancel your policy. For that reason you should always fully and completely explain the full extent of your medical condition. - If you are unsure about any particular item be sure to state - Do not recall
And as a catch-all to protect yourself, always refer the carrier to your doctors' records of the care provided to you and list the names and address of your doctors. - Pay premiums automatically
It may be a good idea to have premiums automatically deducted from your bank account and paid electronically by your bank. Should an illness delay or prevent paying your statements on time, your coverage will not lapse.
Keep the policy in a convenient place where you or anyone else can readily find it, and tell a trusted friend or relative where it is.
For more information, please contact Ingrid Evans or call us toll free 800.226.9880.